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Phoenix Coyotes bankruptcy
, home of the Coyotes. The lease agreement of the Arena was cited as one reason for the failure of the franchise.]] The Phoenix Coyotes, a professional ice hockey team of the National Hockey League (NHL), filed for bankruptcy in 2009 after incurring several hundred million dollars of losses since their move to Phoenix, Arizona. In December 2008, the media became aware that the Phoenix Coyotes were losing money at a high rate and were being funded by the NHL directly. The media reports were minimized by the NHL president Gary Bettman and vice-president Bill Daly, but secretly the NHL had taken over operations of the Coyotes. In May 2009, the owner of the team Jerry Moyes put the team into bankruptcy hours before receiving Bettman who was to present a potential offer to purchase. Moyes intended to sell the team to Canadian billionaire Jim Balsillie who intended to purchase the team out of bankruptcy and move it to Hamilton, Ontario without being restricted by the NHL's rules on relocation. From May until September 2009, hearings were held in Phoenix bankruptcy court to determine the fate of the Coyotes and the holding company. Two potential bidders for the team surfaced, Chicago White Sox owner Jerry Reinsdorf and Ice Edge Holdings, Inc. but they did not put in a bid for the team at the bankruptcy hearing. Instead, the NHL put in the only rival bid to Balsillie for the team, while they fought Moyes' plan to sell the team and move it to Hamilton against the NHL rules. Ultimately, the Phoenix court ruled that the team could not be sold to Balsillie, as the judge held that bankruptcy could not be used to subvert the league's rules. The NHL's bid was also insufficient for the bankruptcy judge, but Moyes and the NHL settled with the NHL buying the team and assuming all debts. The NHL negotiated a temporary lease with Jobing.com Arena owner, the City of Glendale, Arizona. The NHL then proceeded to work with the two potential bidders of Reinsdorf and Ice Edge to work out a deal with Glendale. Ice Edge signed a letter of intent to buy the team from the NHL, while Reinsdorf had won the approval of the City of Glendale. As of June 2010, negotiations were not completed between the City of Glendale and Reinsdorf, and Reinsdorf has dropped out of the bidding. Glendale is once again negotiating with Ice Edge. The NHL, which had threatened to move the team to Winnipeg for the 2010–11 season, has agreed to keep the team in Glendale for the season, after Glendale agreed to fund its losses. Warning signs On December 8, 2009, during a press conference at the annual December NHL board of governors' meeting, the issue of the state of the economy was raised by reporters. The Phoenix Coyotes were reported to lose up to $35 million on the 2008–09 season. Asked to comment on Phoenix's loss, Commissioner Gary Bettman was quoted as saying "They're going to get through the season just fine." The Coyotes's COO, Doug Moss admitted that the team had lost a lot of money and was still losing money. He was not prepared to reveal the number of season-ticket subscribers that the team had: "We have never really revealed our season-ticket base . . . it's too low, that's a number that's too low." It was revealed during bankruptcy proceedings that the Coyotes averaged 5,450 season tickets per season for the four seasons from 2005–2009. The true state of the Phoenix franchise was not revealed, however. In the documents filed with the Phoenix bankruptcy court, the NHL stated that the league took official control of the team on November 14, 2008. The league then began advancing money to the club from league revenues, and made a loan to the club in February 2009, for a combined estimated total of $44.5 million over the full season. The league fired the Coyotes CEO Jeff Shumway and laid off 18 Coyotes employees. Moyes' documents filed with the court indicated that the team had lost $73 million over the last three years, and that the projected loss was $45 million for 2008–09. In the September 2009 bankruptcy hearings it was noted that an audit had shown that the team had never made a profit since moving from Winnipeg, and lost $54.8 million in 2008 alone. On December 23, 2008, the Toronto Globe and Mail reported that the Coyotes were receiving financial assistance from the league in the form of advances on league revenues. The Coyotes pledged all of their assets to New York company SOF Investments LP to cover an estimated debt of $80 million. The team had lost an estimated $200 million since 2001 and in recent years posted heavy losses, including $41.6 million in 2006-07, $37.3 million during the 2007-08 season, and $54 million in 2008-09. One of the team's owners, Jerry Moyes' principal source of revenue, Swift Transportation was also in financial difficulty. ESPN reported that the league has become involved with the operations of the Coyotes and their revenues. The NHL apparently wanted to work with the city of Glendale which owns the arena and receives revenues from the team. ESPN also reported that Moyes was interested in selling his share of the team. Hollywood producer, and noted hockey fan, Jerry Bruckheimer was cited as a possible investor. Bankruptcy filing On May 5, 2009, the Coyotes' holding company, Dewey Ranch Hockey LLC, filed for Chapter 11 bankruptcy. In a statement, Moyes announced that he had agreed in principle to sell the team to PSE Sports and Entertainment, headed by Research in Motion co-CEO Jim Balsillie, for $212.5 million. As part of the deal, Balsillie intended to move the Coyotes to Hamilton, Ontario. Although initial reports said that Balsillie was considering Kitchener as well, Hamilton already had an NHL-sized arena in place, Copps Coliseum and Balsillie was already in talks with city officials to secure a lease for the arena. Balsillie had previously made unsuccessful approaches to purchase the Pittsburgh Penguins and Nashville Predators, with the intent of relocating either team to Hamilton. Anyone who wanted to make a counteroffer had to exceed Balsillie's bid by at least $5 million. At Moyes' request, Balsillie agreed to post debtor-in-possession (DIP) financing of $17 million. Balsillie's efforts also started public relations efforts, including setting up the web site makeitseven.ca to build public support in Canada for his purchase and transfer of the Coyotes to Hamilton. The announcement came as a surprise to the NHL and even to Coyotes staffers. NHL Commissioner Gary Bettman had helped broker a deal that would have seen the Coyotes sold to Chicago Bulls and White Sox owner Jerry Reinsdorf. At the time of the announcement, Bettman was in Phoenix to present the deal to Moyes. Unlike Balsillie's offer, the Reinsdorf deal was to ensure the Coyotes stay in Arizona. Terms of the Reinsdorf deal were not disclosed, but The Sports Network's Bob McKenzie speculated that it was almost certainly less than the Balsillie offer. The NHL responded by stripping Moyes of virtually all of his ownership authority (although he remained the owner in title). Bettman said that Moyes may not have had the authority to file the bankruptcy petition, and may not have even been in full control of the team by virtue of the massive financial assistance he'd received. Although it has been widely speculated that southern Ontario is big enough to support a third NHL team alongside the Toronto Maple Leafs and Ottawa Senators (despite the Buffalo Sabres and Detroit Red Wings being right on the doorstep of the region as well), Bettman suggested that it was not likely the league would approve any plan to move the Coyotes to Canada, and accused Moyes and Balsillie of attempting to "circumvent" league rules. He also reiterated that the NHL was committed to the Phoenix area. Bankruptcy hearings The first bankruptcy hearing was scheduled for May 7, 2009. Court documents submitted by Moyes cite thirty creditors, including Moyes himself for an amount in excess of US$103 million. TSN's Bob McKenzie said that Moyes was very receptive to Balsillie's offer because, as the team's largest unsecured creditor, the best chance of getting most of his money back was to persuade someone to buy the team out of bankruptcy. The league's position was that it was Moyes' fault that he paid himself so much money and that he was entitled to only $14 million of $103 million loss, which would have been the case if Jerry Reinsdorf's lower bid was accepted. At the bankruptcy hearing, the NHL argued that it had been in control of the team since November by virtue of a proxy agreement with Moyes. The NHL claimed this agreement, and several others signed by Moyes, specifically barred Moyes from filing for bankruptcy. Moyes claimed that the agreement only gave the league voting rights, not outright control. Bankruptcy court judge Redfield Baum scheduled a second hearing for May 19 to determine who actually controls the team. However, deputy commissioner Bill Daly said that regardless of how the judge ruled, the league owners would have the final say in whether to allow the Coyotes to move. Daly repeated Bettman's doubts about Balsillie's bid, saying Balsillie was acting "in total disregard" for NHL rules. At the May 19 hearing, Baum ordered the NHL and Moyes to settle the ownership question through mediation, while expressing skepticism for the NHL's argument that the proxy agreements gave it control of the team. He said that he needed to decide whether to allow the move to Hamilton before the franchise was sold. However, the NHL claimed there was no way it could reach a decision on whether to allow the move in time for the 2009-10 season. The day after the hearing, Balsillie spokesman Rich Rodier told Arizona Republic Coyotes beat writer Jim Gintonio that Balsillie was willing to keep the team in Phoenix for the 2009-10 season, provided that the NHL fund any losses. Although the judge ordered mediation, none took place. In late May, Balsillie filed a formal application with the NHL to purchase the Coyotes and relocate them to Hamilton. Baum set up a tentative hearing to consider an auction of the team if the NHL Board of Governors rejected Balsillie's bid. The other three major North American sports organizations filed amicus curiae briefs with the court supporting the NHL position. They argued that if Baum forced the league to move the Coyotes, it would "disrupt the business" of professional sports. New York's two Senators, Chuck Schumer and Kirsten Gillibrand, also wrote Baum to oppose the move on the grounds that a Hamilton-based team would do severe economic harm to the Sabres. Although Hamilton is usually reckoned as part of the Toronto market, it also falls within the Sabres' protected market, as it is only 45 miles from Buffalo. The NHL filed documents stating that four prospective buyers had filed applications with the league. All four intended to keep the Coyotes in Phoenix. These included Jerry Reinsdorf, Toronto Argonauts co-owners Howard Sokolowski and David Cynamon; and John Breslow of Las Vegas, who was already an owner of 3% of the Coyotes. A fourth remained anonymous. The league stated that any franchise moved without the league's permission, such as moving it to Hamilton would render it valueless. "At most, the proposed transaction would transfer a collection of used hockey equipment — none of which could bear the NHL logo." At a June 9, 2009 hearing, Judge Baum agreed with the NHL that the league is within its rights to demand a relocation fee. Balsillie lawyer Richard Rodier suggested that the league would set the fee as high as $100 million to dissuade Balsillie. Balsillie himself was quoted as saying that he was open to paying the fee, although his lawyers suggested that he would walk away from the deal if the fee is 'exorbitant.' On June 15, Baum ruled against Balsillie's proposal, stating that the timeline imposed by Balsillie was unrealistic and did not provide enough time for the courts or the NHL to wade through the issues posed by the relocation. Baum also rejected the proposal in part due to the fact that Balsillie's offer did not include any relocation fee to the NHL, to which they would be entitled since southern Ontario is potentially a more lucrative market than Phoenix. In the ruling, the judge also dismissed claims made by Moyes and Balsillie's lawyers that the NHL was violating antitrust laws in not allowing the move. The ruling effectively ended any chance of the Coyotes moving for the 2009-10 season. Baum's ruling did not rule out Balsillie as an NHL franchise owner. Balsillie indicated at the time that he would continue bidding on the team in spite of the failure of his first offer. The NHL indicated a desire to hold an auction in September to find a new owner for the team, indicating that the auction would be open to prospective owners who would keep the team in Arizona, and stated that at least four potential buyers had been identified. The league had also indicated a willingness to hold a second auction, open to relocation, if the team could not be sold in the planned September auction. On July 9, the Court set two auction dates for the team. The first auction on August 20, would be a primary auction with the stipulation that whoever has the winning bid, must agree to keep the team in Phoenix for at least 5 years, after which they may relocate with league approval at any time. An undisclosed minimum bid must be met in this auction. Should this auction fail, the second auction on September 10, will be run with no minimum bid; in which the new owner will have the right and authority to move the team to another location at any time without league approval after the 2009-10 season. Balsillie stated that he was willing to keep the team in Phoenix for the time being and intended to bid in the August auction. On July 29, the NHL Board of Governors met to consider the application of Balsillie to purchase the Coyotes and the relocation. The Governors voted overwhelmingly 29–1 against Balsillie (unanimously except for Moyes' representative). The Governors also voted to approve Reinsdorf as a potential owner. Daly stated that Balsillie was rejected under bylaw 35 of the NHL Constitution, which allows applications to be rejected to persons which the NHL believes are not of "good character and integrity." Balsillie responded in a filing saying that "the NHL has long tolerated indicted and even convicted criminals among its ranks", noting that moral grounds and questions of character have never been used "in the entire history of the NHL to reject any applicant." The NHL also revealed another bid, by businessman Anthony Leblanc of Thunder Bay, Ontario to purchase the Coyotes, which they also rejected as 'incomplete' but encouraged Leblanc to pursue the bid. Leblanc's company, Ice Edge Holdings Inc. publicly revealed their bid with a letter of intent filed with the bankruptcy court. The club would bid up to $150 million for the team, and keep it in Phoenix, with up to five games played annually in Saskatoon, Saskatchewan. Ice Edge also named Canadian businessman Daryl Jones as one of the principals in its group. On August 13, 2009, Judge Baum ordered the NHL to hand over documents regarding the Coyotes' relocation. These documents were related to any potential expansion to Hamilton, and any relocation fees charged for any franchise moves by the NHL. Documents filed with the court included the previously secret NHL Constitution and also the section of the NHL Bylaws which spelled rules of relocation fees. Balsillie's lawyers filed the documents, claiming that sections of the Constitution violate anti-trust law and asked that the judge ignore the rules of the NHL on that basis. These became part of the public record and available on various web sites to download. On September 6, 2009, it was reported by the Toronto Star that the NHL set a potential relocation fee of $101 million to $195 million to move the Phoenix Coyotes to Hamilton, while economics professor Andrew Zimbalist in a study conducted for James Balsillie valued the move at $11.2 million to $12.9 million. On September 7, 2009, Balsillie had reportedly sweetened his offer by US$40–50 million to buy out the lease of the Glendale Arena. On September 9, 2009, it was reported that both Reinsdorf and Ice Edge Holdings had withdrawn from the bidding for the Coyotes, leaving only Balsillie and the NHL as prospective purchasers. It was announced on September 24 that Wayne Gretzky had stepped down as head coach. On September 30, 2009, Judge Baum rejected both bids. This effectively ended any chance of a forced sale to Balsillie and relocating the Coyotes to Canada. However, the NHL's bid was criticized for its failure to repay Moyes and Gretzky, two of the largest creditors, though the league had a chance to improve its bid. While Balsillie's bid treated both as full creditors, the NHL promised Moyes only about $14 million of his claimed losses of $104 million, which would be shared with Gretzky who has a claim of about $22 million. Sale to the NHL and aftermath On October 26, 2009, Jerry Moyes reached a deal to sell the Coyotes to the NHL for $140 million. "It remains the NHL’s intention upon taking control of the club, to stabilize the club’s operations and, as quickly as possible, to resell the club to a new owner who is committed to operating the club in the Glendale/Phoenix market," said Bill Daly. The sale was finalized on November 3, 2009. The price included $36.3 million already owed to the NHL, $80.7 million in secured claims and $11.3 cash going to the seller. $2 million went for professional fees and the NHL paid $11.6 million in unsecured claims, although not those of Moyes' family. The agreement also lowered a $30 million guaranty by Moyes to $15 million. If the team is resold within two years, the bankrupt estate will receive the net profit. The NHL agreed to pay the modified arena lease until June. Since securing ownership of the team the league openly stated that it was in negotiations with Ice Edge Holdings, Leblanc's partnership of Canadian and Phoenix-area businessmen, but was rumoured to have resumed negotiations with Reinsdorf also. The Ice Edge bid, while planning to keep the team in Phoenix, also proposed to play five Coyotes home games in Saskatoon each season as part of a five-year plan to return the Coyotes to profitability. A new prospective purchaser for the team appeared in late November 2009. Steve Stotland, a Montreal businessman, was reported to be teaming with undisclosed local investors to prepare a bid to buy the team. Stotland had previously been involved with the Washington Capitals and was interested in purchasing the Montreal Canadiens in 2000. Stotland attended the November 12 game between the Coyotes and Canadiens and met with team management. In December 2009, the NHL announced that Ice Edge Holdings had signed a letter of intent with the NHL to purchase the Coyotes. Ice Edge would still have to negotiate a lease agreement with the City of Glendale, and get its ownership approved by the NHL Board of Governors. In March 2010, it was reported that the league has negotiated an agreement in principle in place to sell the team to Canadian billionaire David Thomson, a major investor in True North Sports and Entertainment (TNSE), in the event negotiations to keep the team in Arizona fail. TNSE owns and operates the 15,000-seat MTS Centre in Winnipeg and according to the report intends to begin play there from the 2010/11 season. With a seating capacity of 15,015 for hockey, MTS Centre would be the smallest building in the NHL and it would presumably have to have long-term plans to increase the capacity by at least 2,000. However, although representatives for both the NHL and TNSE confirmed past discussions regarding a possible return of an NHL franchise to Winnipeg, both the NHL and TNSE denied any agreement was in place. By March 2010, the NHL had not finished the sale to Ice Edge. It was reported that Ice Edge had run into trouble securing sufficient financing although the group denied the claims. The NHL launched a lawsuit for $61 million against former Coyotes owner Jerry Moyes to recover $10 million in bankruptcy court costs, $20 million in losses for 2009-10 and $11.6 million owed to creditors. . On May 10, 2010, the lawsuit was transferred from New York to Arizona. Moyes is planning to move for dismissal of the case. On April 9, 2010, the City of Glendale announced that it had received two offers to purchase the Coyotes, with Memorandums of Understanding from both Ice Edge Holdings and Glendale Hockey (headed by Chicago Bulls and Chicago White Sox owner Jerry Reinsdorf). The MOU's would both keep the team based in Glendale's Jobing.com Arena. . Both groups would change the name of the team from Phoenix Coyotes to Arizona or Glendale Coyotes. Reinsdorf's memorandum proposed a "community facilities district" that would sell bonds and collect revenue. The city would pay the NHL up to US$65 million in three-year increments -- $21.6 million the first year, $21.6 million the second year and $21.8 million the third year. This was immediately objected to by the conservative Goldwater Institute of Arizona, stating that it placed undue risk on the City of Glendale and Reinsdorf took none of the risk. Ice Edge's proposal, which required annual fees of $5 million in parking revenues, was more acceptable to the Institute. On April 13, 2010, the City of Glendale, at a weekly council meeting, approved Reinsdorf's proposal by a vote of 6-0 while rejecting Ice Edge Holdings' proposal 5–1. The agreement included a special tax district surrounding the arena, expected to generate $47 million annually from businesses in support of the team. The agreement allowed Reinsdorf the option to move the team after five years if revenues are not up to expectations. John Kaites, an attorney for Reinsdorf and a partner in the Glendale Hockey, LLC group has claimed the out-clause to be an "assessment period". Former Coyotes CEO Jeff Shumway criticized the deal, saying that the team would not have gone bankrupt if the same deal had been available two years earlier. Reinsdorf's bid, which will pay the NHL $65 million for the team, has to be approved by the league board of governors. After the vote, Bettman was quoted as characterizing the Glendale vote as a "terrific step" and that he anticipated that the league would have no problems in approving Reinsdorf's purchase, including the 5-year 'out clause'. Bettman declined to give a timetable for the purchase approval. On May 7, 2010, the Globe and Mail reported that negotiations to finalize the details of the MOU between Reinsdorf and Glendale were going poorly and Glendale had sought out Ice Edge to return to negotiations. What is reported to be in dispute are the terms of the special tax district. The Arizona Republic reported that negotiations had resumed with Ice Edge, with Glendale removing its objection to guaranteeing $5 million in revenues from parking for the team. Scott Burnside of ESPN characterized the Reinsdorf deal as "dead", and that Glendale must agree to some conditions of the NHL's such as guaranteeing operating losses before any sale to Ice Edge. On May 10, it was reported that negotiations between Glendale and Ice Edge had broken down. Glendale, which plans to cut its 2010-11 budget by $14.7 million through cost-cutting, faced a NHL-imposed deadline during the negotiations. The NHL could sell the team and move it if a deal is not done by July 1, 2010. At a May 11, 2010 meeting, Glendale City Council voted to extend the sales period by agreeing to fund the team's losses for the 2010–11 season (up to a maximum of $25 million) if the team is not sold by July 1. The NHL, which had drawn up a schedule with the team playing in Winnipeg, as a back-up plan, required the condition to continue the team in Phoenix. NHL Deputy Commissioner Bill Daly appeared at the Council meeting, stating that the sale of the Coyotes is still expected to close by the end of June and the payments may never be needed. Glendale city manager Ed Beasley stated that both Reinsdorf and the Ice Edge group were still in the running to purchase the team. The decision also gave Beasley the authority to set up a 'Community Facilities District' around the arena. The District would collect fees, possibly including ticket surcharges and parking charges, that would be directed to the hockey club. On June 4, 2010, Glendale announced that it had a new Memorandum of Understanding with Ice Edge. The new MOU had a new clause whereby Ice Edge can exit its agreement with Glendale. To retain negotiating rights with Glendale, Ice Edge was given ten days to provide legal assurances from its bankers showing it can borrow the money it needs and the $25 million fund for the NHL. Reinsdorf responded to the announcement by announcing that he was withdrawing from the bidding, saying "it was time to move on." See also * Wayne Gretzky * 2008–09 NHL season * 2009–10 NHL season * 2009–10 Phoenix Coyotes season References External links * The BizOfHockey - NHL Constitution and Bylaws * * * Category:Phoenix Coyotes Category:2009 in hockey Category:2010 in hockey